February 6, 2009

Posted By Jennifer Rossa On February 6, 2009 @ 12:20 pm In Uncategorized | No Comments
WSJ.com

By [1] Laura Kreutzer

The recession is hitting consumer-focused companies particularly hard. We asked Charles Esserman, managing director and chief executive of TSG Consumer Partners, a mid-market private equity firm focused exclusively on consumer product companies, for his thoughts on the challenges in this sector.

Q. Consumer confidence has hit a low in recent months. What needs to happen before it stabilizes?
Confidence will be re-established when more jobs are created than lost. The stimulus package can help while making critical investments in our infrastructure. 2009 will be worse than 2008 in terms of job loss, corporate bankruptcies, and capital required to support financial institutions. 2010 will be better than either year.

Q. We’ve seen plenty of retailers run into trouble and go bankrupt lately. Which areas of the consumer products sector are most vulnerable?
Which are least? Consumers will buy products with tangible benefits and clear value. Innovation in these areas will drive growth. You can’t just sell a marketing proposition.

Q. How do you expect private equity activity in this area in 2009 to compare to 2008?
We continue to see great companies with significant growth trajectories, even in a challenging economy. We are also seeing opportunities to deleverage companies that can provide attractive structured returns on equity. The story is obviously different for large leveraged transactions - that market is mostly closed for business.

Q. TSG, founded in 1987, has seen its share of economic recessions. What lessons from past downturns can be applied?
We have always been exceedingly cautious, choosing to forego the opportunity to hit the long ball in favor of preservation of capital. We have a general aversion to significant debt which restricts growth and creates undue financial risk. About half of our investments are not leveraged at all.

Q. What role do you see foreign consumers playing in the survival of U.S. consumer product companies?
The recession is worldwide. International markets are important growth avenues for larger companies. For smaller companies, international markets are difficult to access. In the early days of our VitaminWater investment, I recall the CEO highlighting Texas as our biggest “foreign” market.